The shape of things to come

The challenges and possible solutions for the warehouses of the future come under scrutiny at our round table sponsored by Gazeley, writes Liza Helps.

There hasn’t been any fundamental change in the design of logistics buildings over the past 25 years. But radical changes in consumer behaviour, driven by new technological advances, has given rise to a logistics revolution. The outcome of which is anyone’s guess at present. That in itself poses challenges to the supply chain industry, as well as for those providing facilities from which they function.

Into this maelstrom of uncertainty, Gazeley is progressing the single largest speculative warehouse development in the UK since the 2008 financial crash with its 574,000 sq ft Altitude building at its Magna Park development in Milton Keynes.

Is this the shape of things to come? Or are things going to be very much different in the future? That was the challenge laid out to a panel of supply chain and logistics property professionals at our roundtable sponsored by Gazeley.

“We are trying to outperform the market,” said Joe Garwood, development director at Gazeley, “to get to where we think customers need space. We want to push the design on in this building more than we have done previously.”

The building itself will total 574,000 sq ft and will be cross docked with 180 HGV spaces as well as 400 car parking spaces with the capacity to increase to 765 with double decking (which Gazeley has already future proofed by laying foundations).

“While that is good for setting the scene, those features are not what is important about the building – what is; is the fact that it will be 21m in height giving customers good value for money,” says Garwood.

“Take a comparable building with the same size footplate but with a 15m eaves height, the additional 6m at Altitude adds 40,000 pallet spaces. It provides room for five mezzanines versus three, ten rack heights versus seven.”

Power has also been sorted with an eye to automation. The roof is photo-voltaics ready. Space for batteries to store that energy has also been designed in.
Alex Verbeek, UK managing director of Gazeley said: “We consider this an occupier-specific specification solution as opposed to an institutional standard specification. Many landlords and developers in our sector are guilty of consistently looking to drive value by maximising floor area, and getting a big building on a small site. But it’s not about institutional acceptability. We need to think about customer acceptability.”

For those customers looking for space, labour or rather a lack of, it takes top priority.

Adam Fox of ABB Robotics said: “Looking at the big disrupters [facing the logistics industry] the nearest one is the unavailability of labour.”
At present, warehouse operations require a lot of labour especially around peak shopping periods such as Black Friday and Christmas, which can be five times busier than normal. It is not surprising then that tenants want buildings to be located near to or have excellent transport links to, a large pool of labour. As Fox remarked: “Competition for labour is vast.”

Indeed Michael Alderton, a director of property consultant JLL, noted that some clients stipulate how close they wish to be to competing logistics businesses. “We had a situation in Northampton where a client had spent considerable time and money securing a property and hiring a lot of staff, only to lose many of them when an internet giant opted to take a nearby facility and offered workers a higher headline salary.”

The labour situation is unlikely to get much better moving forward said Bernard Molloy, global director of Unipart Industrial Logistics. “The reality of Brexit is that there is going to be a bigger shortage of labour. It is going to have an enormous effect on the economy.”

It is hardly surprising then that automation has moved higher up the agenda as an obvious answer to this challenge. According to market research firm Technavio, the global logistics robotics market is expected to reach $2.15 billion by 2020, growing at about a 32 per cent compound annual growth rate.

Jon Sleeman, director of UK industrial & logistics research at JLL, said: “There is a sense that robots to some extent will replace people working in warehouses. [From a planning perspective] this goes against the narrative we have spent 20 years telling local authorities. We are going to have to rework that narrative because it is just not true, despite what you read in articles about robotics and automation.

“While you may see quite high levels of automation, this is frequently coupled with high levels of employment. Asda has opened what they describe as a fully automated warehouse at Omega in Warrington, and there are 600 people working there.”

Alderton said: “Automation may be a solution to the labour problem, but there is a lot of stuff that you cannot automate because it just does not work.”
However, Fox noted: “Those jobs that are RSI prone, for instance de-palletising, lifting delivery totes etc, will be the first roles converted to robotics from what we can tell from the majority of our customers. It is quite heartening as these are back breaking jobs.”

While there may be a net decline in these manual handling roles, these jobs are increasingly being replaced by roles for engineers, research analysts etc. “The nature of a logistics job is being redefined,” said Gwyn Stubbings, planning director at Gazeley.

For David James managing director of Knapp Automation, there is an onus on the logistics industry to upskill warehouse tasks to make them more attractive to young people. “We cannot recruit enough people and we are really busy.”

Paul Durkin, director of home and DIY at Wincanton, agreed: “From a point of view of trying to attract people in to the industry, I think there is a real challenge notwithstanding around the point of Brexit and the availability of labour. We are seeing an increased demand for warehouse activity. The automation element is upsetting and while the overall industry is trying to raise its game and trying to make itself more presentable to the market place, it’s got a real struggle. The market is very buoyant at the moment at all levels, whether recruiting for first line management, site management or for colleagues – its really tough.”

One of the options to counter this problem is to look at the provision of apprenticeships and creation of partnerships with universities to train and attract new labour.
Stubbings said that right at the core of the expansion plans for Gazeley’s flagship Magna Park development in Lutterworth is the creation of a Logistics Institute of Technology with Aston University and South Leicester College and North Warwickshire & Hinckley College as further education providers.

There is a groundswell of interest in such partnerships, Molloy pointed to similar schemes in Liverpool and the Institute for Advanced Manufacturing & Engineering (AME), a partnership between Unipart and Coventry University at Cowley, which was set up in 2015 to provide a higher education model for manufacturing engineering degree courses through enhanced activity-led learning.

However, Stubbings said that end users should step up to the plate as well, and believes a nudge from planners in this direction would not go amiss. He pointed to Reading Council, which is obliging occupiers moving into the area to employ and train local unemployed graduates. This is through Section 106 agreements. After a year’s period, the companies must offer full time jobs to a percentage of those in training.

“Even those that are falling out or not making the cut at the end of the day will have gained valuable experience over a few years, making them more work ready and I think we will start to see a lot more of this in the future.”

The logistics industry does suffer a perception issue. Training and provision of higher education facilities, in conjunction with business, will certainly alleviate this to a certain extent (from a labour point of view). But that perception issue is having a detrimental effect on the ability of developers to secure sites and planning required to provide the facilities in the first place.

Verbeek explained: “The profile of logistics and supply chain warehousing, its contribution to GDP, and the attractiveness of that in the planning system from central government all the way to parish council, is much cause for debate.

“Our ability to service our customers and build more buildings, through to who is going to occupy them, what they are going to do with them and who is going to work in them, relies on this perception.”

“We fundamentally need to do something about this perception issue because we are competing for land allocation with residential and offices which are considered to be more neighbourly, higher employment generating uses.”

Alderton said: “There is a fundamental change in approach to how planners and government view logistics, particularly in London and the M25. Land [for employment uses] is being lost at an alarming rate, and unless planners say they are not going to permit change of use, it is going to carry on.”

In the past seven years, London has lost nearly 1,500 acres of employment land. In West London alone, land that was supposed to be gradually released over the next 20 years has gone in just four.

This is being compounded across the UK by the fact that buildings are getting bigger and more land hungry. Stubbings noted: “We did an analysis of Magna Park Lutterworth, which has been developed over 30 years from the late 1980s onwards, versus Magna Park Milton Keynes, which has been developed out over the last ten years. The average warehouse unit at Magna Park Lutterworth is 262,000 sq ft with 32 units on 500 acres of land, or thereabouts, compared to Magna Park Milton Keynes at 225 acres with seven buildings averaging 557,000 sq ft. They are becoming more land hungry so you need more land to facilitate supply.”

Ian Henderson, group property director of Wincanton, said the best solution is collaboration between developer and 3PLs to build what is needed and increase flexibility.
“We have three million sq ft that we lease and three million sq ft that we run; there is no rhyme or reason why some customers want to take a lease and others don’t – that is their choice. However, the one thing I would say is that every requirement is different and as a 3PL we have to respond to those requirements. There is a lot of talk about the future and what I see is that every requirement is different in that regard too.”

Multi-user facilities could be considered a solution. However, Durkin noted that while his company has customers in the UK, Europe, the United States and across the world who will occupy a multi-user facility in Continental Europe ‘they generally speaking will not do so in the UK’.
That notwithstanding, he adds, will have to happen particularly around urban conurbations. “Consumer demand is today not tomorrow, and that is the direction of travel. So therefore DCs particularly in London are going to have to be multi-user – collaborative services are going to be required to fulfil because economically they won’t work otherwise.”

Laura Sutton, strategic occupier solutions director at JLL, said: “There is a multi-storey option which may resolve matters particularly in the South East where land values are high. The issue is that these buildings are expensive to build, but there are developers looking into the solution. It is a volume construction rather than a single development one.” Indeed multi-storey warehouses are relatively commonplace in cities in Asia, where similar land issues are abound, and are extremely successful.
Common user warehousing is yet another option. Sleeman noted that not all companies actually want a building, but they want to use that facility as a web. He added that there are companies such as FLEX in the US and Timicom in Europe that offer that, whereby warehousing is a service. Taking that train of thought further, and looking at a possible future for logistics, he said: “There are trains of thought that the supply chain should be considered as a physical internet, whereby there is a harmonisation of the all the supply chain models with standard modules with standard warehouses and standard material handling equipment, allowing goods to be moved around as required.”

While this would certainly result in a huge reduction in the amount of warehouse space needed, and an increase in efficiency, the one flaw James identified is that there would be no competitive advantage for retailers.

Space must be flexible enough then to be used in different ways. Whether that means multi-user in terms of the supply chain, or else developed in such a way that the building can be split for more than one user either laterally or vertically.

Phil Stanway, director of Chetwood Architects said: “That is where the height issue comes in. It allows for expansion in the future, and being able to fit more space in a smaller footprint right now.” Verbeek agreed: “The logistics property sector is the only sector in the whole property real estate industry that does not use height and cubic capacity as efficiently as anybody else, and the irony is, it is all about cubic capacity.”

This is only going to get more of a focus with the exponential growth of e-commerce. The battle between retailers to get the competitive advantage in terms of delivery is now very present. Once consumers were happy with a delivery within three days. Now there is an expectation that, should they want, they could have it next day. And, in certain locations, on the very day ordered.

Durkin said: “Our industry is being driven by consumers. How they shop and what they expect that is the market and that is where the market is going.
“The demands of the consumer is putting a lot of volatility into undertaking what the future warehouse, and indeed supply chain, will need to look like.”
Gazeley’s Altitude at Magna Park in Milton Keynes is a step in that direction.

About Gazeley
Gazeley, the European division of global logistics company IDI Gazeley, is a leading investor and developer of logistics warehouses and distribution parks with a 33 million square foot portfolio concentrated in Europe’s key logistics markets, namely the UK, Germany, France and the Netherlands. It comprises 17 million square feet of existing assets, which are 98% leased, and a development pipeline of 16 million square feet.
On 2 October 2017, GLP, the leading global provider of modern logistics facilities, announced the acquisition of Gazeley from funds managed by Brookfield, the global alternative asset manager. The transaction is set to complete by year end.